United States: Obama Administration Releases Consumer Financial Protection Agency Proposal

The proposed Consumer Financial Protection Agency would have sweeping authority and carry far-reaching implications for financial institutions.

On June 30, 2009, the Obama administration released a 152-page legislative proposal to create a new Consumer Financial Protection Agency (CFPA) in response to the call for financial regulatory reform and the perceived failure of existing regulatory agencies to adequately police and protect consumer interests. The administration's plan, if enacted, would provide this new agency with sweeping regulatory authority over all financial products and services, supplant the authority of existing agencies to promulgate regulations related to consumer protection, and carry far-reaching implications for any institution or person engaged in the financial services industry.

Financial regulatory reform is a legislative priority for the administration, as well as the Democratic majorities in the U.S. House of Representatives and U.S. Senate. House Financial Services Committee Chairman Barney Frank (D-MA) is a strong proponent of the CFPA and has announced a series of hearings on regulatory reform in July 2009. Chairman Frank intends to mark-up legislation in committee prior to the August Congressional recess, with possible consideration of legislation on the House floor in the fall. Chairman Frank's Senate counterpart, Chairman of the Senate Committee on Banking, Housing and Urban Affairs Chris Dodd (D-CT), likewise has announced his support for the CFPA. Chairman Dodd's committee is scheduled to holding a hearing on the proposal on July 14, 2009. However, the committee is not expected to markup legislation prior to the August recess, with possible Floor consideration in the fall.

Among other major provisions, the administration's proposal would:

  • Establish the CFPA as an independent agency in the executive branch "to regulate the provision of consumer financial products," and provide for a five-member board.
  • Authorize the agency to promulgate regulations and issue orders and guidance, as well as examine or require reports from a "covered person" (defined in the proposal generally as "any person who engages directly or indirectly in a financial activity") to ensure compliance with consumer laws and agency rules.
  • Authorize the agency to "prescribe rules identifying as unlawful, unfair, deceptive or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service," and "prescribe rules to ensure appropriate and effective disclosure or communication to consumers of costs, benefits, and risks associated with any consumer financial product or service."
  • Authorize the agency to weigh in on sales practices by prescribing rules and issuing orders and guidance regarding the "manner, settings, and circumstances for the provision of any consumer financial products or services to ensure that the risks, costs and benefits of the products and services, both initially and over the term of the product or services, are fully and accurately represented to consumers."
  • Allow the agency to prescribe rules establishing duties regarding compensation practices applicable to a covered person, employee, agent or independent contractor "who deals or communicates directly with a consumer in the provision of a consumer financial product or service" – with the exception that the agency shall not prescribe a limit on the total dollar amount of compensation paid to any person.
  • Authorize the agency to prohibit, limit or impose conditions upon the use of mandatory pre-dispute arbitration in agreements.
  • Preempt state law only to the extent that it is inconsistent with federal law or provisions of the CFPA Act, and specifically authorize states to enact or adopt laws, regulations, orders or interpretations that afford consumers greater protection than afforded by this Act.
  • Authorize state attorneys general to bring civil actions in federal district court or state court to "secure monetary relief or equitable relief for violation of any provisions of this title or regulations there under."
  • Authorize the agency or agency investigators to issue subpoenas as part of the investigative and administrative discovery process.
  • Transfer all consumer financial protection functions of the U.S. Federal Reserve System, Office of the Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corporation, Federal Trade Commission and National Credit Union Administration to the agency. ("Consumer financial protection functions" are defined as "research, rulemaking, issuance of orders and guidance, supervision, examination, and enforcement activities, powers and duties relating to the provision of consumer financial products or services.")

Congressional hearings on the administration's proposal have already begun. On July 8, 2009, the U.S. House Energy and Commerce Subcommittee on Commerce, Trade and Consumer Protection held a hearing to explore the plan's effect on the Federal Trade Commission. Assistant Treasury Secretary Michael Barr, who helped write the administration's proposal, betrayed no defensiveness regarding the broad authority that would be provided the CFPA. He testified that: "A new agency with a focused mission, comprehensive jurisdiction, and broad authorities is also the only way to ensure consumers and providers high and consistent standards and a level playing field across the whole marketplace without regard to the form of a product – or the type of its provider."

While Congress will likely alter the administration's proposal, the general consensus is that Congress will pass legislation establishing a new consumer financial protection agency by year end. Already, key financial services trade associations (e.g., Mortgage Bankers Association, American Bankers Association, National Auto Dealers Association) have joined forces to lobby against the administration's proposal. However, as Scott Talbott of the Financial Services Roundtable has stated: "Politically, it would be difficult to kill it outright. Our goal is to change the agency, change the proposal, to where the benefits outweigh the costs."

The McDermott Difference

McDermott's Government Strategies Practice Group is closely monitoring and, where appropriate, lobbying on this proposal on behalf of a range of clients. There is little question that, as proposed, the CFPA would have the authority to mandate specific disclosures and effectively rewrite contracts; alter certain sales and business practices, including compensation incentives and arrangements; and even ban certain types of financial products. Every financial institution has a strong interest in the consideration and outcome of this legislative proposal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions